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The Global Alternative Finance Market size is estimated to grow at a CAGR of 7.71% between 2022 and 2027 and the size of the market is forecast to increase by USD 63.35 billion. The growth of the market depends on several factors, including the emergence of social media associated with growing digital connectivity, quick and easy access to credit, and better returns for investors. High risk of credit default is a major challenge hindering the market growth.
This alternative financing market research report extensively covers market segmentation by type (P2P, lending, crowdfunding, and invoice trading), end-user (individual and organization), and geography (North America, APAC, Europe, South America, and Middle East and Africa). It also includes an in-depth analysis of drivers, trends, and challenges. Furthermore, the report includes historic market data from 2017 to 2021.
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The better returns for investors are notably driving the market growth, although factors such as the high risk of credit default may impede the market growth. Our researchers analyzed the data with 2022 as the base year, along with the key drivers, trends, and challenges. A holistic analysis of drivers will help companies refine their marketing strategies to gain a competitive advantage.
Key Alternative Finance Market Driver
One of the key factors driving the alternative financing market growth is the better returns for investors. Alternative finance offers better returns for investors compared with fixed deposits (FDs) or the bonds offered by traditional financial institutions. The average yield on FDs or 10-year government bonds in developed countries such as the UK and the US is around 1%-3%, and alternative finance investment platforms such as LendingClub and Funding Circle provide returns at a theoretical average of 7%. Though bank savings and bond yield rates in developing countries are similar to those provided by alternative finance platforms, new investors are emerging in these countries due to the quicker return on investment (ROI).
Moreover, alternative finance operators can provide a higher rate of ROI due to their lower operating costs compared with banks and other financial institutions. Online alternative finance platforms have almost no physical assets such as offices and have low human resource and operating costs, low cost of capital acquisition, and low collection and billing costs. This is because all transactions with investors and debtors take place online. Hence, alternative finance operators provide better returns to investors. Such factors will increase the market growth during the forecast period.
Significant Alternative Finance Market Trend
Another key factor driving the alternative finance market growth is the rapid growth in APAC. Alternative finance platforms, including P2P lending, crowdfunding, and invoice trading, are growing in APAC due to the presence of several SMEs. The number of SMEs has increased significantly in Asian countries. For instance, the number of SMEs in China was approximately 18.07 million by the end of 2018. Similarly, according to the data published by the Ministry of Micro, Small and Medium Enterprises (MSMEs), as of March 2020, there were 63.3 million (6.33 Crore) SMEs present across India. The growing number of SMEs in APAC is increasing the demand for alternative financial services and platforms for business growth.
Alternative finance solutions and service providers are helping SMEs by strengthening their access to credit and equity, which, in turn, enables SMEs to invest in growth. Moreover, growing Internet penetration, coupled with the use of smartphones, is encouraging people in APAC to use P2P lending and crowdfunding platforms. This, in turn, is expected to propel the growth of the market during the forecast period.
Major Alternative Finance Market Challenge
The high risk of credit default is one of the key challenges hindering the alternative finance market growth. Alternative finance funds borrowers lack collateral assets and credit history or have poor credit ratings. Therefore, they do not qualify for loans from traditional financial institutions as the chance of defaulting is high. The high risk of credit default discourages many financers from investing in alternative finance, which forces alternative finance intermediaries and operators to decline many borrowers or charge a higher rate of interest. The rate of credit default for almost all major lenders such as Prosper Marketplace, LendingClub, and Funding Circle has been significantly higher than their initial projections.
For instance, the default rates for LendingClub and Prosper Marketplace on loans with a payback period of three years or more average at around 10%-14%. High-risk lenders such as Bondora Capital, which provide loans to customers with very poor creditworthiness, have a credit default rate of up to 25%-30% of their overall loan volume. The high risk of credit default may discourage potential investors from investing in alternative finance, which could affect the growth of the alternative financing market industry during the forecast period.
Key Alternative Finance Market Customer Landscape
The alternative financing market report includes the adoption lifecycle of the market, covering from the innovator’s stage to the laggard’s stage. It focuses on adoption rates in different regions based on penetration. Furthermore, the report also includes key purchase criteria and drivers of price sensitivity to help companies evaluate and develop their growth strategies.
Global Alternative Finance Market Customer Landscape
Vendors are implementing various strategies, such as strategic alliances, partnerships, mergers and acquisitions, geographical expansion, and product/service launches, to enhance their presence in the market.
Bondora - The company offers alternative finance loans which invest in business ventures and provide capital for startups that need quick funding. Also, under this segment, the company is involved in offering consumer loans in continental Europe regions such as Finland, Spain, and Estonia through a fully digital process, supported by advanced credit analytics and in-house servicing.
The report also includes detailed analyses of the competitive landscape of the market and information about 15 market vendors, including:
Qualitative and quantitative analysis of vendors has been conducted to help clients understand the wider business environment as well as the strengths and weaknesses of key market players. Data is qualitatively analyzed to categorize vendors as pure play, category-focused, industry-focused, and diversified; it is quantitatively analyzed to categorize vendors as dominant, leading, strong, tentative, and weak.
The alternative financing market share growth by the P2P lending segment will be significant during the forecast period. The P2P consumer lending sub-segment holds a major share of the P2P lending segment due to the growth in the number of online consumer lending platforms and the increasing use of technology in financial transactions. Some popular P2P lending platforms include LendingClub, Zopa, Bondora Capital, Prosper Marketplace, and Upstart Network. However, P2P lending is associated with a high risk of defaults as the loans are unsecured. Therefore, large investors usually maintain a spread portfolio of their investments. P2P lending is also associated with challenges such as platform failures, the risk of fraud, hacking, and data theft. These factors are expected to augment the demand of the P2P lending segment hence driving the growth of the market in focus during the forecast period.
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The P2P lending segment was valued at USD 120.70 billion in 2017 and continue to grow by 2021. In this segment, P2P lending is similar to credit obtained from financial institutions. However, the funds are raised from one or more independent investors. P2P borrowers must make weekly or monthly repayments of the principal amount with interest. P2P lending is usually carried out through online platforms. Investors directly select businesses to fund, or the lending platforms provide the terms of credit. Some variations in the model allow investors to bid on loan amounts and interest rates through an online auction process. P2P lending is popular among individual borrowers and SMEs, as small to medium-scale loans can be obtained easily. Several individuals opt for P2P loans for debt consolidation, which allows them to pay debts accrued from credit cards or loans from financial institutions.
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North America is estimated to contribute 72% to the growth of the global alternative financing market during the forecast period. Technavio’s analysts have elaborately explained the regional trends and drivers that shape the market during the forecast period. The growth of P2P lending and crowdfunding has increased significantly in North America. The increasing number of students, growing awareness about clearing personal debt, rising Internet penetration, technological advances, the rise of online trading and finance platforms, and the presence of prominent vendors are the major factors driving the growth of the alternative finance market in North America. The number of SMEs has grown significantly in North America. Therefore, a growing number of SMEs in this region are boosting the growth of the alternative finance market in North America.
In 2020, most countries in North America were severely affected by COVID-19. However, the utilization of digital technology in borrowing and lending funds in 2021 and 2022 has boosted the regional alternative finance market. Hence, the recovery and growth of alternative finance in North America are expected to propel the growth of the regional market in focus during the forecast period.
The alternative financing market research report forecasts market growth by revenue at global, regional & country levels and provides an analysis of the latest trends and growth opportunities from 2017 to 2027.
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Alternative Finance Market Scope |
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Report Coverage |
Details |
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Page number |
160 |
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Base year |
2022 |
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Historic period |
2017-2021 |
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Forecast period |
2023-2027 |
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Growth momentum & CAGR |
Accelerate at a CAGR of 7.71% |
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Market growth 2023-2027 |
USD 63.35 billion |
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Market structure |
Fragmented |
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YoY growth 2022-2023(%) |
5.65 |
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Regional analysis |
North America, APAC, Europe, South America, and Middle East and Africa |
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Performing market contribution |
North America at 72% |
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Key countries |
US, China, Indonesia, UK, and Germany |
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Competitive landscape |
Leading Vendors, Market Positioning of Vendors, Competitive Strategies, and Industry Risks |
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Key companies profiled |
Bondora Capital OU, CircleUp Network Inc., ConnectionPoint Systems Inc., Crowdfunder Ltd., Fundable LLC, Funding Circle Holdings Plc, Funding Options Ltd., Fundrise LLC, GoFundMe Inc., Indiegogo Inc., Invoice Interchange Pvt. Ltd., Kickstarter PBC, Kriya Finance Ltd., Lending Crowd, LendingClub Corp., OFB Tech Pvt. Ltd., RealCrowd Inc., Sancus Lending Group Ltd., Trade Ledger Pty. Ltd., and Upstart Network Inc. |
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Market dynamics |
Parent market analysis, Market growth inducers and obstacles, Fast-growing and slow-growing segment analysis, COVID-19 impact and recovery analysis and future consumer dynamics, Market condition analysis for the forecast period. |
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Customization purview |
If our report has not included the data that you are looking for, you can reach out to our analysts and get segments customized. |
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1 Executive Summary
2 Market Landscape
3 Market Sizing
4 Historic Market Size
5 Five Forces Analysis
6 Market Segmentation by Type
7 Market Segmentation by End-user
8 Customer Landscape
9 Geographic Landscape
10 Drivers, Challenges, and Trends
11 Vendor Landscape
12 Vendor Analysis
13 Appendix
Research Framework
Technavio presents a detailed picture of the market by way of study, synthesis, and summation of data from multiple sources. The analysts have presented the various facets of the market with a particular focus on identifying the key industry influencers. The data thus presented is comprehensive, reliable, and the result of extensive research, both primary and secondary.
INFORMATION SOURCES
Primary sources
Secondary sources
DATA ANALYSIS
Data Synthesis
Data Validation
REPORT WRITING
Qualitative
Quantitative
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